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Tuesday, February 24, 2009

Fixed Income Recap

Treasuries were mixed today as the long end of the curve outperformed shorter Treasuries. The two-year was unchanged while the ten-year traded higher by 1/8 of a point as the benchmark curve flattened by 2 basis points. A basis point represents .01%.

The Federal Reserve Bank of New York is now $134.8 billion into their $500 billion dollar MBS buying plan to keep mortgage rates low. The Fed announced last week that it purchased $19.9 billion in agency MBS during the seven day period ending last Wednesday, bringing the weekly average to $19.25 billion.

Mortgage spreads over Treasuries have normalized in the past week into the 145-160 basis points range. With all the demand from the Fed it’s hard to imagine MBS widening anytime soon. If demand for U.S. Treasury debt doesn’t keep up with issuance as it continues to grow in order to fund the ever growing deficit, I would expect MBS to tighten, keeping yields on MBS fairly constant. The government remains dead-set on keeping mortgage rates low and its ability to create artificial demand in order to do so is being felt in the market now.

Links

Hillary Clinton, Treasury Sales Rep

Have a great evening.

Cliff J. Reynolds Jr.
Junior Analyst

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